Landmark Bank v. Machera

• Decision Date: 23 April 1990
• Docket Number: Civ. A. No. 89-1931-Y.
• Parties: The LANDMARK BANK, Plaintiff, v. Joseph J. MACHERA, Defendant and Third-Party Plaintiff, v. Robert H. HAINES, III; the R. Roberts Company; Priscilla L. Baldwin; and Ommen Associates Limited Partnership, Third-Party Defendants.
• Court: U.S. District Court — District of Massachusetts

736 F. Supp. 375

The LANDMARK BANK, Plaintiff, v. Joseph J. MACHERA, Defendant and Third-Party Plaintiff, v. Robert H. HAINES, III; the R. Roberts Company; Priscilla L. Baldwin; and Ommen Associates Limited Partnership, Third-Party Defendants.

Civ. A. No. 89-1931-Y.

United States District Court, D. Massachusetts.

April 23, 1990.

James Ackerman and William Hanlon, Day, Berry & Howard, Boston, Mass., for plaintiff.

Mark Machera and Theresa Bisenius, Revere, Mass., for defendant and third-party plaintiff.

Thomas Kenefick and Martine Reed, Cooley, Shrair, Alpert, Labovitz & Dambrov, Springfield, Mass., for third-party defendants.

MEMORANDUM OF OPINION AND ORDER

YOUNG, District Judge.

Third-party defendants Robert H. Haines, III ("Haines"), Priscilla L. Baldwin ("Baldwin"), the R. Roberts Company ("Roberts"), and Ommen Associates Limited Partnership, Inc. ("Ommen Associates") move this Court pursuant to Fed.R.Civ.P. 12(b)(1) and (2) to dismiss the third-party claims asserted against them by Joseph J. Machera ("Machera"), third-party plaintiff and the defendant in the underlying case. The third-party defendants argue that the Court lacks both subject-matter and personal jurisdiction.

For the reasons that follow, the Court has decided to deny the motion in part and grant it in part. Specifically, the Court denies the motion to dismiss for lack of subject-matter jurisdiction but, as to Haines only, grants the motion to dismiss for lack of personal jurisdiction. As to the other third-party defendants, the Court holds that it may properly exercise personal jurisdiction and denies the motion.

I. BACKGROUND

This is a case about an investment scheme that went sour. At the center of the controversy is Ommen, a show-jumping stallion who unfortunately proved not nearly as hot-to-trot as his investors had hoped.

The basic facts are straightforward. On or about July 20, 1987, the defendant Machera, a Massachusetts resident, signed a promissory note to the plaintiff, The Landmark Bank ("Landmark"), a Connecticut resident, in the principal amount of $111,400. Under the terms of the note, Machera promised to make three consecutive annual payments of $37,133. Machera also promised to pay interest on the unpaid balance twice a year, on or before the 30th day of each January and June. Machera made the required payments during 1988, but failed to make a $4,005 interest payment due January 30, 1989 and the $37,133 principal payment due June 30, 1989, plus the interest due thereon. When Machera so defaulted, Landmark exercised its right under the note to demand payment of the entire unpaid balance. Machera refused, and continues to refuse, to pay.

Landmark thereupon brought this action against Machera to recover $84,104.24, plus interest, costs, and attorneys fees. Jurisdiction in this Court is premised on diversity of citizenship pursuant to 28 U.S.C. sec. 1332 (1988).

In his answer, Machera admits that he executed the promissory note in question, but claims that he did so because of the false and fraudulent misrepresentations of Landmark through its director, Haines. Machera states that Haines arranged for him to obtain financing through Landmark for the purchase of two shares of Ommen Associates. Haines is President and Director of Roberts, one of two general partners in Ommen Associates. The other is Baldwin. Ommen Associates was formed "to purchase, show, breed and sell Ommen, an eight-year old show-jumping stallion." Private Placement Memorandum for Ommen Associates, Answer, ex. "A" hereinafter Private Placement Memorandum.

Machera alleges that Haines, individually and through Ommen Associates and its general partners Baldwin and Roberts, represented to him that a buyer for all shares in Ommen Associates existed and that Machera would realize a profit on his investment without having to make any payment under the promissory note. No such buyer existed. Machera claims that Haines knew there was no buyer for Ommen Associates and made the false representations in question to induce Machera to sign the promissory note. Machera further claims that Haines, through Roberts, Baldwin and Ommen Associates, backdated the July 20, 1987 note to March 31, 1987 in order to comply with the Private Placement Memorandum.¹ Finally, he asserts that Haines, through the others, failed to convey ownership interest in the two units after he had made the $111,400 payment, giving title instead to Mark Sanderson ("Sanderson"), an acquaintance of Machera's.

Machera has counterclaimed against Landmark, Haines, Baldwin, Roberts and Ommen Associates. Each of the defendants-in-counterclaim² is a resident of Connecticut. The counterclaims allege unfair and deceptive trade acts and practices, in violation of Mass.Gen.L. ch. 93A, sec. 2 (1986) and Conn.Gen.Stat. sec. 42-110b (1989);³ and fraud in the offering and sale of securities, in violation of Mass.Gen.L. ch. 110A, sec. 410 (1986) and Conn.Gen.Stat. sec. 36-498 (1989). A further counterclaim directed against Landmark alone asserts failure to register with the Massachusetts Secretary of State before offering securities for sale to Massachusetts residents, in violation of Mass.Gen.L. ch. 110A, sec. 201(a) (1986). Machera seeks damages in the amount of $111,400.

Eager to return this case to the mundane status of a simple action to recover upon a promissory note, the third-party defendants have moved to dismiss the counterclaims for lack of subject-matter and personal jurisdiction. As is detailed below, the Court denies the motion in part and grants it in part.

II. SUBJECT-MATTER JURISDICTION

The plaintiff, Landmark, and the four defendants-in-counterclaim are all residents of Connecticut. As a result, the third-party defendants argue that their presence in the lawsuit destroys the requisite diversity of citizenship. They further argue that an independent basis for subject-matter jurisdiction, such as ancillary jurisdiction, does not exist, because Machera's counterclaim is not compulsory under Fed.R.Civ.P. 13(a). Machera apparently does not contest the absence of diversity, for in his brief he argues only that the Court should exercise ancillary jurisdiction over the counterclaims.

This issue can be dealt with simply and summarily. The presence of the third-party defendants does not destroy diversity. It appears that the defendants-in-counterclaim have succumbed to a simplistic definition of diversity that turns not on the ultimate interests of the litigants but on the formal title of each party in the pleadings. As they would have it, for diversity purposes any party whose formal title includes the word "defendant" cannot be from the same state as the nominal plaintiff.

While the defendants-in-counterclaim are correct to assert that both Article III and the statutory grant of diversity in 28 U.S.C. sec. 1332 have been interpreted to require complete diversity, Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806), in determining whether such diversity exists, the Court has a duty to "look beyond the pleadings and arrange the parties according to their sides in the dispute." City of Dawson v. Columbia Avenue Saving Fund, Safe Deposit, Title & Trust Co., 197 U.S. 178, 180, 25 S.Ct. 420, 421, 49 L.Ed. 713 (1905). The Court is not bound by the way the parties are formally aligned in the pleadings. See 13B C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction 2d sec. 3607 at 430 (1984). Instead, the Court must realign the litigants so that the parties with the same "ultimate interests" in the outcome are on the same side. Id. at 433.

Realigning the parties in this manner, it is clear that the parties with opposing ultimate interests are all from different states. This is an action between Machera — a Massachusetts resident — on the one side, and Landmark, Haines, Baldwin, Roberts and Ommen Associates — Connecticut residents — on the other. The essence of Machera's counterclaim and defense to the underlying action is that he was defrauded by the other parties to induce him to invest in Ommen Associates. Diversity, therefore, is present between the two sides to this dispute.⁴

In short, this Court has subject-matter jurisdiction over Machera's counterclaims.⁵

III. PERSONAL JURISDICTION

Although the Court possesses subject-matter jurisdiction, it must nonetheless have personal jurisdiction over the third-party defendants in order to proceed against them. Rule 13(a) specifically precludes compulsory counterclaims that require for adjudication the presence of third parties over whom "the court cannot acquire jurisdiction." Fed.R.Civ.P. 13(a).

This issue presents a closer call for the Court. In examining it, the Court is reminded that "personal jurisdiction, and specifically the constitutionality of State application of long arm statutes, is a topic which over the years has puzzled first year law students and learned jurists alike." Hugel v. McNell, 886 F.2d 1, 3 (1st Cir. 1989), petition for cert. denied, ___ U.S. ___, 110 S.Ct. 1808, 108 L.Ed.2d 939 (1990).

Perhaps it would be best to begin with some general observations. There are two types of personal jurisdiction: general and specific. See Thompson Trading Ltd. v. Allied Lyons PLC, 123 F.R.D. 417, 425-26 (D.R.I.1989), reconsideration denied, 124 F.R.D. 534 (D.R.I.1989). The concept of general jurisdiction calls for an examination into whether a defendant has such purposeful and systematic contacts with a forum state as to justify the exercise of personal jurisdiction over it by the forum's courts in any matter. The paradigmatic general jurisdiction defendant is one of the forum's domiciliaries. Specific jurisdiction, on the other hand, depends on the relationship between the contacts giving rise to personal jurisdiction and the activities underlying the cause of action. With specific jurisdiction, therefore, the necessary level of minimum contacts can be quite low — indeed, a single contact with the...